by Xueli Ang of John Foord

In today's insurance landscape, businesses must prioritize accurate and robust sums insured. While it may be tempting to lower cost figures or underestimate replacement costs, this approach carries significant risks. Volatile costs can undermine insurance coverage adequacy, leaving businesses exposed to substantial losses.

It is crucial for businesses to remain vigilant of the conflicts that exist in loss situations potential damages that undervalued assets or outdated can cause when making insurance claims.

Inadequate insurance coverage exposes businesses to significant financial risks in the event of an insured event. However, it is essential to note that uninsured losses can also create legal challenges for directors and senior managers, leading to prolonged settlement processes.

Thankfully, advancements in technology have made regular valuations cost-effective and less disruptive, using modelling and on-desk analytics to provide accurate assessments efficiently.

In-house engineering teams and other business stakeholders often lack the depth of knowledge required to accurately assess replacement costs for insurance purposes. Relying on historical cost indexing or depreciating asset registers is insufficient for determining accurate replacement costs. Asset registers are often incomplete, exclude third-party assets, and lack the necessary detail for precise historic cost indexing. Furthermore, acquisition dates recorded in the accounts may not align with the actual purchase dates, creating discrepancies in asset valuation.

Companies often assume that their in-house teams' knowledge of assets will translate to accurate reinstatement cost valuations. However, there is often a misconception of reinstatement cost and base values used – such as the accounting net book values which are depreciated or other subjective judgement. Furthermore, limited resources and time constraints may prevent them from conducting detailed replacement cost assessments.

While some risk managers may consider independent valuations a low-priority issue, the insurance market's increased focus on underinsurance demands a proactive approach.

Underinsurance remains a focal point, the insurance market's increased focus on underinsurance demands a proactive approach. Regular independent valuations provide accurate assessments, mitigate legal liabilities, optimize insurance premiums, and offer valuable insights for business operations. By embracing these practices, companies can safeguard their financial interests and ensure adequate insurance coverage.

In recent years, the rapid surge of inflation, compounded by events like the COVID-19 pandemic and geopolitical conflicts, has introduced volatility into the market. Rising energy prices, material costs, and labour expenses have complicated business operations. Many organisations are insuring their assets significantly below their true replacement values, unaware of the potential impact on business continuity.

Regular independent valuations provide accurate assessments, mitigate legal liabilities, optimize insurance premiums, and offer valuable insights for business operations. By recognizing the risks of underinsurance and securing accurate sums insured, businesses can protect their valuable assets effectively.

John Foord is an independent advisory firm that specialises in the valuation of commercial and industrial buildings, civils, structures, plant and equipment across more than 70 industries ranging from hotels, energy, infrastructure, high-tech, manufacturing to telecommunications. They help support insurance companies, re-insurers, brokers and owners by assessing current reinstatement costs to ensure that the declared values are accurate and defendable.

John Foord can assist on the following:

  • Reinstatement Costs – shine light on current costs and how they can impact insurable values for your locations in a complex changing world.
  • Schedules of Assets – Improve asset and financial management with accurate detail on your fixed assets.
  • Portfolio Analysis – Quickly and easily manage large portfolios of assets internationally using our sophisticated models and databases.

Trinity and John Foord can help you and your organization be prepared for unexpected market conditions and mitigate risks. Inquire now through this link: https://trinity-insures.com/collections/service-solutions/products/risk-management-and-loss-prevention